District  Court  of  the  United  States 

FOR  THE  EASTERN  DISTRICT  OF  PENNSYLVANIA. 


UNITED  STATES  OF  AMERICA 

VS. 

READING  COMPANY,  ET  AL. 


PLAN,  AND  COUNTER-PROPOSAL  OF 
THE  UNITED  STATES. 


FEBRUARY  14  1921. 


W0S1IM 


111 


U Yl 


In  the  District  Court  of  the  United 
States,  for  the  Eastern  District  of 
Pennsylvania. 


The  United  States  of  America , Petitioner, 


vs. 


Reading  Company,  Philadelphia  & Reading  Railway  Com- 
pany, The  Philadelphia  & Reading  Coal  & Iron  Com- 
pany, The  Central  Railroad  Company  of  New  Jersey, 
The  Lehigh  & Wilkes-Barre  Coal  Company,  The  Lehigh 
Coal  & Navigation  Company,  Wilmington  & Northern 
Railroad  Company,  Lehigh  & Hudson  River  Railway 
Company,  Lehigh  & New  England  Railroad  Company, 
George  F.  Baer,  George  F.  Baker,  Edward  T.  Stotesbury, 
Henry  C.  Frick,  Peter  A.  B.  Widener,  Henry  A.  duPont, 
Daniel  Willard,  Henry  P.  McKean  and  Samuel  Dickson, 
Defendants. 


In  pursuance  of  the  decree  of  mandate  of  this  Court  en- 
tered October  8th,  1920,  defendants,  Reading  Company, 
Philadelphia  and  Reading  Railway  Company,  and  The  Phil- 
adelphia & Reading  Coal  & Iron  Company,  respectfully 
~ submit  the  following  plan: — 

1.  The  Reading  Company  will  assume  the  $96,524,000 
General  Mortgage  4%  bonds,  which  are  a joint  obligation 
of  the  Reading  Company  and  The  Philadelphia  & Reading 
<f}  Coal  & Iron  Company  (hereinafter  called  the  Coal  Com- 
pany), and  will  agree  to  save  the  Coal  Company  and  its 
property  harmless  therefrom, 
o 


h 564  m 


4 


2.  The  Coal  Company  will  pay  to  the  Reading  Company 
$10,000,000  in  cash,  or  current  assets  at  market  value,  and 
$25,000,000  in  4%  mortgage  bonds  of  the  Coal  Company. 
The  mortgage  under  which  they  are  to  be  issued  may  contain 
provision  for  the  issue  thereunder  of  additional  bonds  to 
provide  for  additions,  betterments  and  improvements  to  a 
limited  amount,  to  be  determined  by  the  Reading  Company 
and  the  Coal  Company  prior  to  the  creation  of  the  mort- 
gage, and  shall  contain  provision  for  a proper  sinking  fund 
for  the  retirement  of  bonds  issued  thereunder.  The  $25,- 
000,000  bonds  issued  by  the  Coal  Company  to  the  Reading 
Company  shall  mature  on  January  1,  1997,  the  same  date 
as  the  General  Mortgage  bonds.  The  bonds  issued  by  the 
Coal  Company  shall  be  subject  to  redemption  at  par  and 
accrued  interest  on  any  semi-annual  interest  date  as  a whole 
but  not  in  part,  except  out  of  the  moneys  in  the  sinking 
fund. 

3.  Except  as  otherwise  herein  expressly  provided,  gen- 
eral releases  of  all  claims  and  liabilities  as  between  the 
Reading  Company  and  the  Coal  Company,  including  the 
claim  of  approximately  $70,000,000  carried  on  the  books 
of  the  Reading  Company  as  an  asset  and  on  the  books  of 
the  Coal  Company  as  a liability,  will  be  exchanged. 

4.  The  Reading  Company  will  agree  that  it  will  obtain 
the  release  of  the  coal  property  from  the  lien  of  the  Gen- 
eral Mortgage  and  the  discharge  of  the  Coal  Company  from 
liability  on  the  General  Mortgage  bonds,  provided  such  re- 
lease and  discharge  can  be  secured  by  payment  by  the 
Reading  Company  to  the  bondholders  of  a premium  not 
exceeding  10%  upon  the  par  value  of  the  outstanding  Gen- 
eral Mortgage  bonds.  Such  release  and  payment  will  be 
made  from  time  to  time  as  the  acquiescence  of  the  several 
bondholders  shall  be  given.  The  Reading  Company  will 
make  payment  of  said  premium  on  the  order  of  the  com- 
mittee to  be  formed  in  the  interest  of  the  bondholders.  Said 
committee  will  call  for  the  deposit  of  bonds  and  will  be 
authorized  by  the  depositors  to  return  to  them  their  bonds 


5 


stamped  as  assenting  to  the  release  and  discharge  above 
mentioned,  or  to  return  to  them,  in  the  discretion  of  the 
committee,  refunding  and  improvement  mortgage  bonds  of 
the  Reading  Company  hereinafter  described  for  an  equal 
principal  amount  and  bearing  4%  interest.  Though  the 
committee  will  order  payment  of  the  premium  from  time 
to  time  as  the  bonds  are  deposited,  it  will,  in  the  first  in- 
stance, cause  to  be  issued  depository  receipts  for  the  Gen- 
eral Mortgage  bonds  and  will  retain  the  General  Mortgage 
bonds  until  it  shall  have  determined  that  a sufficient  per- 
centage of  bonds  has  been  deposited  to  declare  in  effect 
the  plan  of  exchange  for  refunding  and  improvement  mort- 
gage bonds,  or  that  in  its  judgment  it  is  improbable  that  a 
sufficient  amount  of  bonds  will  be  so  deposited.  Upon 
such  determination  it  shall  deliver  to  the  holders  of  the 
depository  receipts  the  refunding  and  improvement  mort- 
gage bonds  or  General  Mortgage  bonds  stamped  as  afore- 
said, as  the  case  may  be.  The  depository  will  collect  and 
pay  out  the  interest  on  the  deposited  bonds  pending  the 
determination  of  the  committee  as  aforesaid. 

5.  It  is  assumed  that  the  Attorney  General  will  ask  the 
Court  to  direct  the  release  of  the  stock  of  the  Coal  Company 
from  the  lien  of  the  General  Mortgage  on  such  terms  as 
the  Court  may  fix.  If  practicable  the  Coal  Company  will 
consolidate  with  Delaware  Coal  Company,  of  which  it  owns 
the  entire  capital  stock,  and  the  consolidated  company  will 
issue  stock  without  par  value  to  the  Reading  Company.  If 
that  is  not  practicable,  a new  corporation  will  be  created  to 
acquire  from  the  Reading  Company  the  stock  of  the  Coal 
Company,  or  the  interest  of  the  Reading  Company  therein, 
and  such  new  corporation  will  issue  no  par  value  stock.  The 
number  of  shares  to  be  issued  of  the  consolidated  Coal 
Company  or  of  such  new  corporation  may  be  1,400,000. 

Such  no  par  value  stock  will  be  sold  to  the  stockholders 
of  the  Reading  Company,  preferred  and  common,  share 
and  share  alike,  for  $5,600,000.,  or  $2.00  for  each  share  of 
Reading  Stock.  It  is  proposed  to  carry  out  this  sale,  in  ac- 
cordance with  the  precedent  established  by  the  Union  Pa- 


6 


cific-Southern  Pacific  case,  by  distributing  to  Reading  stock- 
holders assignable  certificates  of  interest  in  the  Coal  Com- 
pany stock  exchangeable  for  such  stock  only  when  accom- 
panied by  an  affidavit  that  the  holder  is  not  the  owner  of 
any  stock  of  Reading  Company.  Any  further  steps,  which 
may  be  deemed  necessary  by  the  Court,  will  be  taken  to  the 
end  that  an  independent  board  and  management  to  be  ap- 
proved by  it  will  be  maintained  for  the  Coal  Company,  so 
that  the  independence  of  this  company  need  not  await  the 
necessarily  gradual  process  of  the  distribution  of  the  stock 
of  the  Coal  Company  among  persons  not  holders  of  stock 
in  the  Reading  Company. 

6.  The  Reading  Company  will  merge  the  Philadelphia  & 
Reading  Railway  Company  under  the  authority  contained 
in  the  present  charter  of  the  Reading  Company,  and  will 
subject  the  Railway  property  to  the  direct  lien  of  the  Gen- 
eral Mortgage.  The  name  of  the  Reading  Company,  after 
merger,  will  not  be  changed.  The  Reading  Company  will 
accept  the  Pennsylvania  Constitution  of  1874,  and  it  will 
proceed  under  the  Act  of  1856  to  surrender  those  of  its 
powers  which  are  inappropriate  for  a railroad  corporation 
of  Pennsylvania.  Thus  the  Reading  Company  will  be  in  all 
respects  subject  to  the  regulation  of  State  and  Federal  au- 
thorities as  a common  carrier,  and  the  relation  of  the  Read- 
ing Company,  as  a specially  chartered  holding  company,  to 
the  Philadelphia  and  Reading  Railway  Company  will  be 
terminated. 

7.  If  and  whenever  the  General  Mortgage  bondholders’ 
committee  shall  determine  to  declare  the  plan  of  exchange 
effective,  the  Reading  Company  shall  execute  a refunding 
and  improvement  mortgage,  which  shall  constitute  a direct 
lien  upon  all  the  railroads,  railroad  property,  railroad  equip- 
ment and  railroad  stocks  and  bonds  then  owned  by  the 
Reading  Company  or  thereafter  acquired  by  means  of 
bonds  issued  thereunder.  Deposited  General  Mortgage 
bonds  will  be  kept  alive  under  said  refunding  and  improve- 
ment mortgage  until  the  General  Mortgage  is  released. 


7 


The  refunding  and  improvement  mortgage  will  contain  ap- 
propriate provision  for  the  reservation  of  bonds  to  refund 
outstanding  General  Mortgage  bonds  and  other  prior  lien 
bonds  or  obligations.  It  will  be  an  open  mortgage  in  mod- 
ern form  with  appropriate  provision  for  the  issue  of  addi- 
tional bonds  for  the  acquisition  of  new  property  and  for 
additions,  betterments  and  improvements  to  the  mortgaged 
property. 

8.  The  Court  will  be  asked  to  defer  the  actual  sale  of  the 
stock  held  by  the  Reading  Company  in  the  Central  Railroad 
of  New  Jersey  pending  the  grouping  of  railroads  by  the 
Interstate  Commerce  Commission  under  the  Transportation 
Act,  but  subject  to  the  further  order  of  the  Court.  It  is 
assumed  that  the  Attorney  General  will  ask  the  Court  to 
make  an  order  assuring  the  voting  of  the  stock  pending  such 
sale  in  the  manner  approved  by  the  Court.  A detailed  plan 
for  the  prompt  disposition  of  the  stock  of  the  Lehigh  and 
Wilkes-Barre  Coal  Company  by  the  Central  Railroad  of 
New  Jersey  has  been  submitted  separately. 

Wm.  Clarke  Mason, 

R.  C.  Leffingwell, 

Chas.  Heebner, 

Dated,  February  14th,  1921. 


Of  Counsel. 


In  the  District  Court  of  the  United 
States  for  the  Eastern  District  of 
Pennsylvania. 


United  States  of  America 


vs. 

Reading  Company , et  al. 


No.  1095. 


COUNTER  PROPOSAL  BY  THE  UNITED  STATES 
TO  PARAGRAPH  EIGHT  OF  THE  DEFEND- 
ANTS’ PLAN. 

Comes  now  the  United  States  by  Frank  K.  Nebeker, 
Assistant  to  the  Attorney  General,  and  Abram  F.  Myers, 
Special  Assistant  to  the  Attorney  General,  and  respectfully 
represents  unto  the  Court  that  the  provision  in  the  plans 
submitted  by  the  defendants  for  the  placing  in  the  hands  of 
a trustee  of  Reading  Company’s  interest  in  the  stock  of  the 
Central  Railroad  Company  of  New  Jersey,  pending  the 
working  out  of  a plan  for  the  re-grouping  of  railroads  by 
the  Interstate  Commerce  Commission  under  the  Trans- 
portation Act  of  1920,  is  not  a satisfactory  compliance  with 
the  requirements  of  the  Supreme  Court. 

Complying  with  the  requirement  in  the  interlocutory 
decree  that  the  United  States  shall  embody  its  suggestions 
in  reference  to  the  defendants’  plan  in  a plan  of  its  own, 
the  United  States  respectfully  suggests  that  the  following 
paragraphs  be  submitted  for  paragraph  eight  of  the  de- 
fendants’ plan: — 


10 


“Reading  Company  shall,  with  all  due  diligence, 
offer  for  sale  at  a reasonable  price  and  upon  reason- 
able terms  the  stock  of  the  Central  Railroad  Company 
of  New  Jersey  now  owned  by  it  for  a period  of 
years.  If  at  the  expiration  of  such 
period  a sale  of  such  stock  has  not  been  made,  then, 
upon  application  of  the  Attorney  General,  the  Court 
may  decree  a sale  at  public  auction  at  a price  not  less 
than  a minimum  price  to  be  agreed  upon  between  the 
Reading  Company  and  the  Attorney  General.  During 
this  period  Reading  Company  shall  accept  any  offer  by 
a reasonable  purchaser  made  in  good  faith  and  at  a 
reasonable  price  and  in  the  event  of  any  disagreement 
between  an  intending  purchaser,  who  has  complied  with 
the  foregoing  provisions,  and  the  Reading  Company, 
then  the  matter  shall  be  referred  to  the  Attorney  Gen- 
eral for  his  advice  and  if  the  parties  shall  still  be  at  a 
disagreement,  then  any  party  (Reading  Company,  the 
United  States,  or  the  intending  purchaser)  may  bring 
the  matter  to  the  attention  of  the  Court  for  its  deci- 
sion. A purchaser  under  this  provision  must  be  ap- 
proved by  the  Attorney  General,  and,  if  a railroad 
company,  shall  apply  to  the  Interstate  Commerce  Com- 
mission for  its  authority  to  make  such  purchase  under 
paragraphs  two  and  three  of  Section  407  of  the  Trans- 
portation Act  of  1920. 

“For  the  purposes  of  carrying  out  such  a provision, 
jurisdiction  of  the  case  shall  be  retained  by  the  Court.” 

The  suggestions  of  the  Government  in  reference  to  the 
other  provisions  of  defendants’  plan,  which  suggestions 
relate  only  to  matters  of  detail,  are  embodied  in  the  memo- 
randum attached  hereto. 

FRANK  K.  NEBEKER, 

Assistant  to  the  Attorney  General. 

A.  F.  MYERS, 

Special  Assistant  to  the  Attorney  General. 


In  the  District  Court  of  the  United 
States  for  the  Eastern  District  of 
Pennsylvania. 


The  United  States  of  America, 


vs. 

Reading  Company,  Philadelphia  & Reading  Railway  Com- 
pany, The  Philadelphia  & Reading  Coal  & Iron  Com- 
pany, The  Central  Railroad  Company  of  New  Jersey, 
The  Lehigh  & Wilkes-Barre  Coal  Company,  et  al. 


Plan  for  the  Disposal  by  The  Central  Railroad 
Company  of  New  Jersey  of  all  the  Stock  of  The 
Lehigh  & Wilkes-Barre  Coal  Company  now  Owned 
or  in  any  Manner  Controlled  by  it.  Framed  in 
such  Form  as  to  be  Embodied  in  the  Decree. 


The  Central  Railroad  Company  of  New  Jersey  shall  dis- 
pose of  all  its  capital  stock  of  The  Lehigh  & Wilkes-Barre 
Coal  Company  now  owned  by  it  to  persons  or  corporations 
who  are  not  its  own  stockholders  or  stockholders  in  either 
Reading  Company,  Philadelphia  & Reading  Railway  Com- 
pany or  The  Philadelphia  & Reading  Coal  & Iron  Com- 
pany, and  who  previous  to  or  at  the  time  of  purchase  shall 
qualify  as  purchasers  by  a duly  executed  affidavit  in  one 
of  the  forms  hereto  annexed. 


12 


The  affidavit  in  the  case  of  an  individual  purchasing  in 
his  own  right  shall  be  substantially  in  the  form  hereto  an- 
nexed, marked  “Form  A.” 

If  the  purchaser  is  a corporation  or  a joint-stock  com- 
pany, the  affidavit  shall  be  executed  by  its  president,  vice 
president,  secretary  or  treasurer,  or,  in  the  case  of  a cor- 
poration of  a foreign  country,  by  one  of  its  managing  offi- 
cers, and  shall  be  substantially  in  the  form  hereto  annexed, 
marked  “Form  B.” 

If  the  purchaser  is  a partnership  the  affidavit  shall  be 
executed  by  one  of  the  partners  and  shall  be  substantially 
in  the  form  hereto  annexed,  marked  “Form  C.” 

All  of  the  said  stock  shall  be  disposed  of  within  six 
months  after  entry  of  this  decree,  or  previous  to  any  other 
later  date  which  may  be  fixed  by  the  Court.  Stock  may  be 
disposed  of  in  such  manner  and  upon  such  terms  as  The 
Central  Railroad  Company  of  New  Jersey  may  determine; 
provided,  however,  that  it  shall  only  be  acquired  by  persons 
or  corporations  qualified  to  receive  it  under  the  terms  of 
the  said  affidavits.  And  provided  further,  not  less  than 
twenty  per  cent,  shall  be  paid  in  cash  at  the  time  of  its  dis- 
position by  persons  or  corporations  acquiring  it. 

On  or  before  the  date  fixed  by  the  Court  before  which 
the  disposal  of  such  stock  shall  be  completed  The  Central 
Railroad  Company  of  New  Jersey  shall  file  or  cause  to  be 
filed  with  the  clerk  of  this  Court  a statement  containing 
the  names  of  the  persons,  corporations  or  partnerships  to 
whom  such  stock  has  been  disposed  of  and  the  number  of 
shares  acquired  by  each,  which  statement  shall  be  annexed 
to  the  said  affidavits. 

Should  all  of  the  said  stock  not  be  disposed  of  before  the 
expiration  of  six  months  after  entry  of  this  decree  or  pre- 
vious to  any  later  date  which  may  be  fixed  by  the  Court, 
the  remainder  shall  be  then  transferred  to  the  Central 
Union  Trust  Company  of  New  York  (hereinafter  called 
the  “Trustee”)  as  the  custodian  and  depository  of  the 
Court,  subject  to  the  provisions  of  this  decree  and  to  the 
further  orders  and  decrees  of  the  Court  herein.  Such  stock 
shall  be  registered  in  the  name  of  the  Trustee  on  the  books 


13 

of  The  Lehigh  & Wilkes-Barre  Coal  Company  and  certi- 
ficates therefor  delivered  to  the  Trustee. 

Such  stock,  together  with  any  dividends  received  by  the 
Trustee  thereon,  shall  be  transferred  by  the  Trustee  from 
time  to  time  to  persons  to  whom  The  Central  Railroad 
Company  of  New  Jersey  may  have  sold  the  same  and  who 
are  qualified  to  receive  it  under  the  terms  of  this  decree. 

Pending  transfer  the  Trustee  shall  receive  all  dividends 
declared  on  any  stock  standing  in  its  name  and  may  vote 
thereon  at  any  stockholder  meeting. 

The  said  Trustee,  having  declared  its  submission  to  the 
jurisdiction  of  this  Court  for  the  purpose  of  carrying  out 
this  provision  of  this  decree  and  having  entered  its  appear- 
ance herein  by  counsel,  is  made  a party  hereto. 

The  Central  Railroad  Company  of  New  Jersey  shall 
from  time  to  time,  upon  the  request  of  the  Attorney  Gen- 
eral of  the  United  States,  furnish  him  with  any  informa- 
tion which  he  may  require  relating  to  the  carrying  out  of 
this  decree. 

In  order  to  enable  The  Central  Railroad  Company  of 
New  Jersey  to  dispose  of  the  said  stock  of  The  Lehigh  & 
Wilkes-Barre  Coal  Company  to  the  greatest  advantage 
without  any  accumulated  dividends,  the  injunction  hereto- 
fore granted  in  this  suit  shall  be  modified  so  as  to  permit 
The  Central  Railroad  Company  of  New  Jersey  to  collect 
and  receive  any  dividends  which  have  been  or  may  be  de- 
clared upon  the  stock  of  The  Lehigh  & Wilkes-Barre  Coal 
Company  previous  to  disposition  thereof. 

Robert  w.  Deforest, 

Of  Counsel. 


February  14,  1921. 


14 


FORM  A. 

State  of 
County  of 

, being  duly  sworn,  deposes  and 
says:  That  deponent  is  the  bona  fide  purchaser  in  his  own 
proper  right  of  a certificate  or  certificates  for 
shares  of  the  capital  stock  of  The  Lehigh  & Wilkes-Barre 
Coal  Company,  transferred  to  him  by  The  Central  Railroad 
Company  of  New  Jersey  under  a decree  entered  on  the  8th 
day  of  October,  1920,  in  the  suit  of  The  United  States  of 
America  vs.  Reading  Company,  Philadelphia  and  Reading 
Railway  Company,  The  Philadelphia  & Reading  Coal  & 
Iron  Company,  The  Central  Railroad  Company  of  New  Jer- 
sey, The  Lehigh  & Wilkes-Barre  Coal  Company,  et  al,  and 
makes  this  affidavit  at  or  previous  to  the  time  of  the  issu- 
ance to  him  of  such  certificate  or  certificates  for  the  purpose 
of  evidencing  his  right  to  receive  the  same.  That  deponent 
does  not  own  in  his  (or  her)  own  right  any  shares  of  the 
capital  stock  of  The  Central  Railroad  Company  of  New 
Jersey,  Reading  Company,  Philadelphia  & Reading  Railway 
Company,  The  Philadelphia  & Reading  Coal  & Iron  Com- 
pany, whether  registered  in  his-  (or  her)  own  name  on  the 
books  of  said  companies  or  any  of  them  or  registered  in 
the  names  of  others  for  deponent’s  use  and  benefit.  That 
deponent  in  receiving  this  said  certificate  or  certificates  is 
not  acting  for  or  on  behalf  of  any  stockholder  of  The  Cen- 
tral Railroad  Company  of  New  Jersey  or  of  any  other  of 
the  said  Companies  or  in  concert,  agreement  or  understand- 
ing with  any  other  person,  firm  or  corporation  for  the 
control  of  The  Lehigh  & Wilkes-Barre  Coal  Company  in 
the  interest  of  The  Central  Railroad  Company  of  New  Jer- 
sey or  of  any  other  of  the  said  companies,  but  is  acting  in 
his  own  behalf  in  good  faith. 


Sworn  to  before  me,  this 


day 


, 1921. 


i5 


FORM  B. 

State  of 
County  of 

, being  duly  sworn,  deposes  and 
says:  That  he  is  of  , a 

corporation  (or  a joint-stock  company).  That  said  corpora- 
tion is  the  bona  fide  purchaser  on  its  own  proper  right  of  a 
certificate  or  certificates  for  shares  of  the  capital 

stock  of  The  Lehigh  & Wilkes-Barre  Coal  Company,  trans- 
ferred to  it  by  The  Central  Railroad  Company  of  New  Jer- 
sey under  a decree  entered  on  the  8th  day  of  October,  1920, 
in  the  suit  of  The  United  States  of  America  vs.  Reading 
Company,  Philadelphia  & Reading  Railway  Company,  The 
Philadelphia  & Reading  Coal  & Iron  Company,  The  Central 
Railroad  Company  of  New  Jersey,  The  Lehigh  & Wilkes- 
Barre  Coal  Company,  et  al.,  and  makes  this  affidavit  at  or 
previous  to  the  time  of  the  issuance  to  it  of  such  certificate 
or  certificates  for  the  purpose  of  evidencing  its  right  to 
receive  the  same.  That  corporation  does  not  own  in  its 
own  right  any  shares  of  the  capital  stock  of  The  Central 
Railroad  Company  of  New  Jersey,  Reading  Company, 
Philadelphia  & Reading  Railway  Company,  The  Philadel- 
phia & Reading  Coal  & Iron  Company,  whether  registered 
in  its  own  name  on  the  books  of  said  companies  or  any  of 
them  or  registered  in  the  names  of  others  for  its  use  and 
benefit.  That  said  corporation  in  receiving  the  said  certifi- 
cate or  certificates  is  not  acting  for  or  on  behalf  of  any 
stockholder  of  The  Central  Railroad  Company  of  New  Jer- 
sey or  of  any  other  of  the  said  companies  or  in  concert, 
agreement  or  understanding  with  any  other  person,  firm  or 
corporation  for  the  control  of  The  Lehigh  & Wilkes-Barre 
Coal  Company  in  the  interest  of  The  Central  Railroad  Com- 
pany of  New  Jersey  or  of  any  other  of  the  said  companies, 
but  is  acting  in  its  own  behalf  in  good  faith. 


Sworn  to  before  me,  this 


day  of 


, 1921. 


i6 


FORM  C. 

State  of 
County  of 

, being  duly  sworn,  deposes  and 
says : That  he  is  a member  of  the  partnership  of 

(hereinafter  called  the  “Partnership”). 
That  said  Partnership  are  the  bona  fide  purchasers  in  their 
own  proper  right  of  a certificate  or  certificates  for 
shares  of  the  capital  stock  of  The  Lehigh  & Wilkes-Barre 
Coal  Company,  transferred  to  them  by  The  Central  Rail- 
road Company  of  New  Jersey  under  a decree  entered  on 
the  8th  day  of  October,  1920,  in  the  suit  of  The  United 
States  of  America  vs.  Reading  Company,  Philadelphia  & 
Reading  Coal  & Iron  Company,  The  Central  Railroad  Com- 
pany of  New  Jersey,  The  Lehigh  & Wilkes-Barre  Coal  Com- 
pany, et  al.}  and  makes  this  affidavit  at  or  previous  to  the 
time  of  the  issuance  to  them  of  such  certificate  or  certifi- 
cates for  the  purpose  of  evidencing  their  right  to  receive  the 
same.  That  said  partnership  does  not  own  in  their  own 
right  any  shares  of  the  capital  stock  of  The  Central  Rail- 
road Company  of  New  Jersey,  Reading  Company,  Philadel- 
phia & Reading  Railway  Company,  The  Philadelphia  & 
Reading  Coal  & Iron  Company,  whether  registered  in  their 
own  name  on  the  books  of  said  companies  or  any  of  them 
or  registered  in  the  names  of  others  for  their  use  and  benefit. 
That  said  partnership  in  receiving  the  said  certificate  or 
certificates  is  not  acting  for  or  on  behalf  of  any  stockholder 
of  The  Central  Railroad  Company  of  New  Jersey  or  of  any 
other  of  the  said  companies  or  in  concert,  agreement  or  un- 
derstanding with  any  other  person,  firm  or  corporation  for 
the  control  of  The  Lehigh  & Wilkes-Barre  Coal  Company 
in  the  interest  of  The  Central  Railroad  Company  of  New 
Jersey  or  of  any  other  of  the  said  companies,  but  is  acting 
in  their  own  behalf  in  good  faith. 


Sworn  to  before  me,  this 


day  of 


, 1921. 


i7 

MEMORANDUM  OF  UNITED  STATES  IN  RE. 

Disposition  by  Central  Railroad  Company  of  Stock 
of  Lehigh  & Wilkes-Barre  Coal  Company. 

The  Central  Railroad  Company  having  already  disposed 
of  the  bonds  of  the  Lehigh  & Wilkes-Barre  Coal  Company, 
the  proposal  to  dispose  of  the  stock  in  accordance  with  the 
Union  Pacific  precedent  is  satisfactory. 

Respectfully  submitted, 

FRANK  K.  NEBEKER, 

Assistant  to  the  Attorney  General. 

A.  F.  MYERS, 

Special  Assistant  to  the  Attorney  General. 

February  14th,  1921. 


c 


District  Court  of  the  United  States 

FOR  THE  EASTERN  DISTRICT  OF  PENNSYLVANIA. 


UNITED  STATES  OF  AMERICA 


vs. 


READING  COMPANY,  ET  AL. 


MODIFIED  PLAN. 


MAY  12,  1921. 


§ 


In  the  District  Court  of  the  United 
States  for  the  Eastern  District  of 
Pennsylvania. 


The  United  States  of  America,  Petitioner, 


vs. 


Reading  Company,  Philadelphia  & Reading  Railway  Com- 
pany, The  Philadelphia  & Reading  Coal  & Iron  Com- 
pany, The  Central  Railroad  Company  of  New  Jersey, 
The  Lehigh  & Wilkes-Barre  Coal  Company,  The  Lehigh 
Coal  & Navigation  Company,  Wilmington  & Northern 
Railroad  Company,  Lehigh  & Hudson  River  Railway 
Company,  Lehigh  & New  England  Railroad  Company, 
George  F.  Baer,  George  F.  Baker,  Edward  T.  Stotesbury, 
Henry  C.  Frick,  Peter  A.  B.  Widener,  Henry  A.  duPont, 
Daniel  Willard,  Henry  P.  McKean  and  Samuel  Dickson, 
Defendants. 


In  pursuance  of  the  decree  of  mandate  of  this  Court  en- 
tered October  8th,  1920,  defendants,  Reading  Company, 
Philadelphia  and  Reading  Railway  Company,  and  The  Phil- 
adelphia & Reading  Coal  & Iron  Company,  respectfully 
submit  the  following  plan: — 

1.  The  Reading  Company  will  assume  the  $96,524,000 
General  Mortgage  4%  bonds,  which  are  a joint  obligation 
of  the  Reading  Company  and  The  Philadelphia  & Reading 
Coal  & Iron  Company  (hereinafter  called  the  Coal  Com- 
pany), and  will  agree  to  save  the  Coal  Company  and  its 
property  harmless  therefrom. 


22 


2.  The  Coal  Company  will  pay  to  the  Reading  Company 
$10,000,000  in  cash,  or  current  assets  at  market  value,  and 
$25,000,000  in  4%  mortgage  bonds  of  the  Coal  Company. 
The  mortgage  under  which  they  are  to  be  issued  may  contain 
provision  for  the  issue  thereunder  of  additional  bonds  to 
provide  for  additions,  betterments  and  improvements  to  a 
limited  amount,  to  be  determined  by  the  Reading  Company 
and  the  Coal  Company  prior  to  the  creation  of  the  mort- 
gage, and  shall  contain  provision  for  a proper  sinking  fund 
for  the  retirement  of  bonds  issued  thereunder.  The  $25,- 
000,000  bonds  issued  by  the  Coal  Company  to  the  Reading 
Company  shall  mature  on  January  1,  1997,  the  same  date 
as  the  General  Mortgage  bonds.  The  bonds  issued  by  the 
Coal  Company  shall  be  subject  to  redemption  at  par  and 
accrued  interest  on  any  semi-annual  interest  date  as  a whole 
but  not  in  part,  except  out  of  the  moneys  in  the  sinking 
fund. 

3.  Except  as  otherwise  herein  expressly  provided,  gen- 
eral releases  of  all  claims  and  liabilities  as  between  the 
Reading  Company  and  the  Coal  Company,  including  the 
claim  of  approximately  $70,000,000  carried  on  the  books 
of  the  Reading  Company  as  an  asset  and  on  the  books  of 
the  Coal  Company  as  a liability,  will  be  exchanged. 

4.  The  Reading  Company  will  agree  with  the  Coal  Com- 
pany that,  at  or  before  the  maturity  of  the  General  Mort- 
gage bonds,  it  will  obtain  the  release  of  the  Coal  Company's 
property  from  the  lien  of  the  General  Mortgage  and  the 
discharge  of  the  Coal  Company  from  liability  on  the  Gen- 
eral Mortgage  bonds. 

5.  If  the  Court  so  orders,  the  Reading  Company  will, 
subject  to  the  lien  of  the  General  Mortgage,  sell,  assign  and 
transfer  all  its  right  f title  and  interest  in  and  to  the  stock 
of  the  Coal  Company,  including  the  present  right  to  vote 
and  receive  dividends  thereon,  to  a nezv  corporation  to  be 
formed  with  appropriate  powers,  and  zvill  agree  to  save 
the  nezv  corporation  and  said  stock  harmless  from  the  lien 


23 


of  the  General  Mortgage , and  will  agree  to  obtain , at  or 
before  the  maturity  of  the  General  Mortgage , the  release 
of  the  stock  of  the  Coal  Company  from  the  lien  of  the 
General  Mortgage  and  the  assignment,  transfer  and  deliv- 
ery of  said  stock  to  the  new  corporation — all  in  consid- 
eration of  the  payment  by  the  new  corporation  to  the 
Reading  Company  of  the  sum  of  $5,600,000,  and  its  agree- 
ment to  issue  its  shares  to  the  stockholders  of  the  Reading 
Company  as  hereinafter  provided.  The  new  corporation 
will  issue  1,400,000  shares  of  stock  without  par  value. 
Such  no  par  value  stock  will  be  sold  by  the  new  corpora- 
tion to  the  stockholders  of  the  Reading  Company,  pre- 
ferred and  common,  share  and  share  alike,  for  $5,600,000, 
or  $2.00  for  each  share  of  Reading  stock.  Provision  will 
be  made  for  the  disposition  by  the  Reading  Company  of 
any  rights  to  subscribe  which  may  not  be  availed  of  by  the 
Reading  stockholders  within  such  period  as  may  be  fixed 
by  the  Reading  Company,  with  the  approval  of  the  Court, 
to  the  end  that  the  new  corporation  shall  receive  the  full 
purchase  price  of  $5,600,000.  It  is  proposed  to  carry  out 
this  sale  in  accordance  with  the  precedent  established  by  the 
Union  Pacific-Southern  Pacific  case,  by  issuing  to  Reading 
stockholders,  with  or  without  the  intervention  of  a trustee, 
as  may  be  provided  for  in  the  final  decree  of  the  Court, 
assignable  certificates  of  interest  in  the  stock  of  the  new 
corporation  exchangeable  for  such  stock  only  when  accom- 
panied by  an  affidavit  that  the  holder  is  not  the  owner  of 
any  stock  of  the  Reading  Company. 

In  addition  there  will  be  embodied  in  the  final  decree  a 
permanent  injunction  against  the  nezv  corporation  exercis- 
ing its  voting  power  on  the  stock  of  the  Coal  Company  in 
such  a way  as  to  bring  about  any  new  relations  between  the 
Coal  Company  and  the  Reading  Company  of  the  character 
complained  of  in  the  present  suit.  Any  further  steps,  which 
may  be  deemed  necessary  by  the  Court,  will  be  taken  to  the 
end  that  an  independent  board  and  management  to  be  ap- 
proved by  it  will  be  maintained  for  the  Coal  Company,  so 
that  the  independence  of  this  company  need  not  await 


24 


the  necessarily  gradual  process  of  the  distribution  of  the  no 
par  value  stock  of  the  new  corporation  among  persons  not 
holders  of  stock  in  the  Reading  Company. 

The  final  decree  may  provide  that  if  by  reason  of  default 
on  the  General  Mortgage  bonds  the  Trustee,  the  Central 
Union  Trust  Company,  shall  exercise  the  right  to  vote  the 
stock  of  Reading  Coal  Company,  it  shall  so  exercise  that 
right  as  not  to  bring  about  unity  of  management  between 
said  Coal  Company  and  Reading  Company,  and  the  final 
decree  may  further  provide  that,  in  the  event  the  Trustee 
at  any  time  is  obliged  to  sell  the  stock  or  properties  of  Read- 
ing Coal  Company,  it  shall  dispose  of  such  stock  and  proper- 
ties separately  from  the  properties  of  Reading  Company  and 
to  different  interests. 

6.  The  Reading  Company  will  merge  the  Philadelphia  & 
Reading  Railway  Company  under  the  authority  contained 
in  the  present  charter  of  the  Reading  Company,  and  will 
subject  the  Railway  property  to  the  direct  lien  of  the  Gen- 
eral Mortgage.  The  name  of  the  Reading  Company,  after 
merger,  will  not  be  changed.  The  Reading  Company  will 
accept  the  Pennsylvania  Constitution  of  1874,  and  it  will 
proceed  under  the  Act  of  1856  to  surrender  those  of  its 
powers  which  are  inappropriate  for  a railroad  corporation 
of  Pennsylvania.  Thus  the  Reading  Company  will  be  in  all 
respects  subject  to  the  regulation  of  State  and  Federal  au- 
thorities as  a common  carrier,  and  the  relation  of  the  Read- 
ing Company,  as  a specially  chartered  holding  company,  to 
the  Philadelphia  and  Reading  Railway  Company  will  be 
terminated. 

7.  The  Court  will  be  asked  to  defer  the  actual  sale  of  the 
stock  held  by  the  Reading  Company  in  the  Central  Railroad 
of  New  Jersey  pending  the  grouping  of  railroads  by  the 
Interstate  Commerce  Commission  under  the  Transportation 
Act,  but  subject  to  the  further  order  of  the  Court.  It  is 
assumed  that  the  Attorney  General  will  ask  the  Court  to 
make  an  order  assuring  the  voting  of  the  stock  pending  such 


25 


sale  in  the  manner  approved  by  the  Court.  A detailed  plan 
for  the  prompt  disposition  of  the  stock  of  the  Lehigh  and 
Wilkes-Barre  Coal  Company  by  the  Central  Railroad  of 
New  Jersey  has  been  submitted  separately. 

Reading  Company, 

By 

Charles  Heebner, 

General  Counsel. 

Wm.  Clarke  Mason, 

Solicitor. 

R.  C.  Leffingwell, 

Counsel. 

Approved  on  behalf  of  the  United  States, 

Abram  F.  Myers, 

Special  Assistant  to  the  Attorney  General. 

(The  objection  of  the  Attorney  General  to  the  provisions 
of  paragraph  7,  and  also  the  plan  for  the  sale  of  the  stock  of 
the  Lehigh  and  Wilkes-Barre  Coal  Company  remain  the 
same  as  in  the  original  plan.) 


0 


c 


IN  THE 

District  Court  of  the  United  States 

FOR  THE  EASTERN  DISTRICT  OF  PENNSYLVANIA. 


No.  1095. 


THE  UNITED  STATES  OF  AMERICA, 


VS. 


READING  COMPANY,  et  al., 


OPINION 


Filed,  May  21,  1921 


0 


c 


In  the  District  Court  of  the  United 
States  for  the  Eastern  District  of 
Pennsylvania 


In  Equity.  No.  1095. 


United  States , 


vs. 

Reading  Co.,  et  al. 


Before  Buffington  and  Davis,  Circuit  Judges,  and 
Thompson,  District  Judge. 


Buffington,  J. 

On  the  return  to  this  Court  of  the  mandate  of  the 
Supreme  Court  of  the  United  States  directing,  inter  alia, 
this  Court  to  enter  a decree  “dissolving  the  combination 
of  the  Reading  Company,  the  Philadelphia  and  Reading 
Railway  Company,  the  Philadelphia  and  Reading  Coal  and 
Iron  Company,  the  Central  Railroad  Company  of  New 
Jersey  and  the  Lehigh  and  Wilkes-Barre  Coal  Company, 
existing  and  maintained  through  the  Reading  Company, 
with  such  provisions  for  the  disposition  of  the  shares  of 
stock  and  bonds  and  other  property  of  the  various  com- 


30 


parties , held  by  the  Reading  Company,  as  may  be  necessary 
to  establish  the  entire  independence  from  that  company  and 
from  each  other,  of  the  Philadelphia  and  Reading  Railroad 
Company,  the  Philadelphia  and  Reading  Coal  and  Iron 
Company,”  etc.,  we  called  before  us  the  counsel  for  the 
United  States  and  the  counsel  for  the  Reading  Company 
and  directed  the  latter,  in  consultation  with  the  former, 
to  formulate  a dissolution  plan  in  conformity  with  the  said 
mandate.  In  accordance  with  these  directions,  and  after 
consultation  by  all  of  said  counsel  from  time  to  time  with 
the  Court,  a tentative  plan  was  eventually  drafted  and 
placed  on  file  in  the  Clerk’s  office,  for  the  inspection  of  all 
parties  concerned.  Subsequently,  the  Court  gave  a hearing 
to  all  parties  who  desired  to  be  heard  and  signified  its 
willingness  to  receive  for  consideration,  petitions  to  inter- 
vene. Numerous  parties  and  representatives  of  various 
interest  having  thus  been  heard  and  numerous  briefs  having 
been  filed  showing  the  views  of  the  parties  concerned,  the 
Court  was  thereby  placed  in  possession  of  such  information 
as  enabled  it  to  determine  what  parties  should  be  allowed 
to  intervene  and  also  to  formulate  such  questions,  issues 
and  objections  to  the  proposed  plan  as  would  afford  a basis 
for  an  enlightening  and  constructive  discussion  on  the  part 
of  all  parties  of  record.  Accordingly,  this  Court,  by  its 
order  of  April  12th,  1921,  directed  it  would  on  May  2d, 
1921,  hear  arguments  on  the  following  questions: — 

“1.  (a)  Whether  the  sale  provided  for  in  para- 
graph Five  of  the  Reading  Plan  is  such  a disposition 
of  the  interest  of  Reading  Company  in  the  stock  of 
the  Philadelphia  & Reading  Coal  & Iron  Company  as 
accomplishes  the  express  purpose  of  the  mandate  of  the 
Supreme  Court  of  the  United  States  requiring  disposi- 
tion by  Reading  Company  of  such  stock  because  the 
holding  of  it  has  been  and  would  be  unlawful:  ( b ) and 
if  the  mandate  is  thereby  complied  with,  whether  such 
disposition  confers  upon  any  one  class  of  stockholders 
of  Reading  Company  any  benefit  to  the  prejudice  of 
the  legal  rights  of  any  other  class  of  stockholders. 


3i 


“2.  Whether  the  stock  of  the  Coal  Company  should 
be  sold  free  from  the  lien  of  the  General  Mortgage, 
or  whether  a sale  of  Certicates  of  Interest  therein 
would  be  a compliance  with  the  provisions  aforesaid 
of  the  mandate  of  the  Supreme  Court  of  the  United 
States. 

“3.  Whether  the  Reading  Company  should  offer  a 
premium  of  ten  per  cent,  to  the  General  Mortgage  bond- 
holders for  release  of  the  Coal  Company’s  property 
from  lien  of  the  mortgage,  or  whether  the  require- 
ments of  the  mandate  of  the  Supreme  Court  of  the 
United  States  may  be  fulfilled  by  proper  injunctive  pro- 
visions in  the  decree  to  be  entered  in  this  cause,” 

and  directed  that  all  parties  who  desired  to  be  heard 
should  file  briefs  on  April  30,  1921,  containing  in  substance 
their  proposed  arguments.  Having  thus  in  advance  the 
advantage  of  the  proposed  arguments,  the  Court  found 
on  the  day  set  for  argument  that,  due  to  a modification 
of  the  plan  agreed  to  by  the  Attorney  General  of  the  United 
States,  the  counsel  for  the  Reading  Company  and  counsel 
representing  certain  holders  of  bonds  secured  by  the  Gen- 
eral Mortgage  of  the  Reading  Company,  substantially  all  of 
the  above  questions  were  disposed  of  save  those  arising 
under  sub-division  b.  of  the  first  question.  And  this  feature, 
briefly  stated,  resolved  itself  into  an  issue  as  to  the  relative 
rights  of  the  preferred  and  common  stock  of  the  Reading 
Company,  arising  out  of  the  disposition  of  the  stock  of  the 
Philadelphia  & Reading  Coal  & Iron  Company,  which  latter 
stock  was  owned  by  the  Reading  Company.  The  stock  of 
the  Philadelphia  & Reading  Coal  & Iron  Co.  so  owned  by 
the  Reading  Company  has  a par  value  of  eight  millions  of 
dollars.  It  will  be  noted  that  this  stock  holding  by  the 
Reading  Company  in  the  Coal  Company  was  decreed  by 
the  Supreme  Court  an  unlawful  holding  and  was  one  as  to 
which  the  Supreme  Court  directed  this  Court  to  enter  a 
decree  “with  such  provision  for  the  disposition  of  the  shares 
of  stock  and  bonds  and  other  properties  of  the  various 
companies,  held  by  the  Reading  Company,  as  may  be  neces- 


32 


sary  to  establish  the  entire  independence  from  that  com- 
pany and  from  each  other,  of  the  Philadelphia  & Reading 
Railway  Company,  the  Philadelphia  & Reading  Coal  & Iron 
Company,”  etc.  In  the  plan  proposed  this  order  was  com- 
plied with  in  that  the  offending  stock  was,  under  proper 
restrictions  and  elections,  to  be  disposed  of  to  all  the  stock- 
holders, both  common  and  preferred,  of  the  Reading  Com- 
pany. By  this  stockholding  passing  from  the  ownership 
of  the  Reading  Company  and  being  vested  in  the  disasso- 
ciated ownership  of  the  individual  stockholders  with  such 
provisions  for  safeguarding  against  an  unlawful  combina- 
tion between  them  as  is  provided  in  the  proposed  decree, 
and  as  will  be  hereafter  described,  it  will  be  seen  the  letter 
and  spirit  of  the  mandate  of  the  Supreme  Court  are  complied 
with.  The  offending  stock  passes  out  of  the  ownership  of 
the  unlawful  holder  and  neither  it  nor  the  proceeds  of  its 
sale  can  be  hereafter  used  in  unlawful  combination.  In 
that  connection  it  will  be  noted  that  the  mandate  directs  a 
“disposition  of  shares  of  stock  and  bonds  and  other  prop- 
erty held  by  the  Reading  Comany,”  and  in  that  respect 
the  mandate  has  been  complied  with  precisely,  in  that  there 
has  been  a “disposition”  of  the  stock,  it  being  taken  from 
the  Reading  Company,  and  it  has  not  even  been  distributed 
by  that  company,  but,  treated  as  an  unlawful  holding  of 
that  company,  it  is  to  be  taken  by  the  Court  and  disposed  of 
absolutely  by  it,  by  sale  through  the  agency  of  a corpora- 
tion created  under  the  provisions  of  this  decree,  to  such 
persons  as  have  qualified  to  lawfully  acquire  it.  The  mere 
circumstance  that  those  persons  are  stockholders  of  the 
Reading  Company  is  attributable  to  the  fact  that  in  the 
application  of  equitable  principles  and  without  sacrifice  of 
the  spirit  of  the  mandate,  they  compose  a class  of  suitable 
recipients,  in  the  manner  above  stated,  of  the  stock  which 
was  unlawfully  held  by  the  company  of  which  they  were 
stockholders.  In  other  words,  if  the  carrying  out  of  the 
mandate  had  necessitated  the  use  of  this  stock  to  reduce, 
for  example,  the  bonded  or  other  indebtedness  of  the  Read- 
ing Company,  the  stockholders  of  that  company,  which  un- 
lawfully held  the  stock  to  be  disposed  of  would  have  no 


33 


claim  in  law  to  prevent  such  disposition.  From  these  con- 
siderations it  is  apparent  that  whatever  this  disposition  of 
the  stock  may  be  called,  it  is  in  no  sense  an  earning  of  the 
Reading  Company  which  is  to  be  disposed  of  by  that  com- 
pany as  a dividend.  It  is  a taking  by  the  law  of  an  asset 
of  that  company,  a stock  asset,  which  was  and  has  been 
owned  in  specie  by  Reading  Company  since  the  Reading 
reorganization  was  formed,  and  which  never  was  earned  or 
could  be  earned  by  the  Reading  Company  itself.  Indeed  it 
is  now  disposed  of  in  substantially  the  same  way  as  the  law 
would  dispose  of  the  property  of  that  company  were  it  being 
dissolved,  and  in  that  connection  we  deem  it  proper  to  say 
that,  under  the  facts  and  circumstances  before  us,  the  legal 
question  of  dividend  distribution  between  different  classes 
of  stockholders  is  not  here  involved,  and  on  that  question 
we  express  no  present  opinion  for  the  simple  reason  that 
we  are  not  dividing  profits  or  earnings. 

Seeing  then  that  this  stock  is  not  an  earning  of  the  Read- 
ing Company  to  be  distributed  as  a dividend,  but  is  a part 
of  its  capital  disposed  of  in  this  case  to  qualifying  share- 
holders, in  the  manner  provided  for  by  the  creation  of  this 
intermediate  corporation,  it  will  be  apparent  that  this  decree 
of  equal  right  to  all  shareholders,  preferred  and  common 
alike,  to  participate  in  the  sale  as  ultimate  purchasers,  is 
based  on  the  general  equitable  principle  that  equality  is 
equity  and  on  the  corporate  right  of  all  shareholders  in  a 
Pennsylvania  corporation  to  share  equally  on  a disposition 
of  its  assets.  We  are  therefore  of  opinion  that  the  plan 
which  embodies  these  equitable  principles  should  be  ap- 
proved and  that  the  claim  of  the  common  shareholders  to 
take  all  of  this  stock  to  the  exclusion  of  the  preferred  stock- 
holders should  be  denied.  And  in  approving  such  plan  we 
note  that  in  point  of  fact  the  equity  of  a common  participa- 
tion of  all  stockholders,  preferred  and  common,  has  not 
only  the  approval  of  the  Government  of  the  United  States 
that  has  no  interest  in  the  controversy,  save  to  see  that 
equity  is  done  to  all;  of  the  Reading  Company  which  has 
no  interest  save  an  impartial  stewardship  for  all  its  share- 


34 


holders;  and  lastly  the  silently  expressed  approval  of  sub- 
stantially two-thirds  of  the  shares  held  by  common  stock- 
holders. This  significant  and  impressive  fact  cannot  but 
be  regarded  as  highly  persuasive  of  the  substantial  equity 
of  this  plan.  Of  the  1,400,000  shares  of  the  common  stock 
of  the  Reading  Company,  less  than  one-third  object  to  it. 
The  other  two-thirds,  having  had  the  opportunity  to  object 
and  failing  to  do  so,  we  are  warranted  in  treating  as  ac- 
quiescing in  the  proposed  plan.  Indeed,  we  are  justified 
from  one  circumstance  in  concluding  from  the  positive  atti- 
tude of  a hundred  thousand  of  those  shares  that  the  remain- 
der are  not  only  passively  acquiescing  but  really  actively 
approving.  This  particular  block  of  a hundred  thousand 
shares  of  the  common  stock  is  represented  by  one  man  who 
is  a trustee  of  an  estate  which  owns  it  and  he  himself  is 
the  owner  of  one-half  of  such  trust  estate.  He  or  the 
estate  have  no  preferred  stock  whatever.  He  is  also  a 
Director  of  the  Reading  Company  and  as  such  favored  the 
plan.  By  his  counsel  he  appeared  at  the  hearing  and 
strongly  urged  its  adoption,  asserting  his  consent  to  the 
preferred  stock  sharing  equally  with  the  common  in  the 
disposition  of  the  shares  of  the  Coal  Company.  His  con- 
tention was  that  this  equal  participation  by  common  and 
preferred  stockholders  was  not  only  fair,  legal  and  equit- 
able, but  that  such  a proportionate  division  tended  to  the 
welfare  of  all  parties  concerned  and  indeed  was  a course 
which  made  the  plan  possible.  When  it  is  considered  that 
the  non-participation  of  the  preferred  stockholders  in  the 
shares  of  the  Coal  Company  and  the  absorption  of  all  the 
stock  by  the  common  shareholders  would  have  benefited  this 
particular  hundred  thousand  shares  by  a large  sum,  this 
Court  may  rest  assured  that  the  proposed  plan  by  its  equal- 
ity works  equity.  Without  entering  upon  a further  discus- 
sion of  the  questions  involved,  we  are  of  opinion,  after  care- 
ful and  matured  consideration,  that  the  plan  as  amended 
should  be  approved  and  we  therefore  direct  the  preparation 
of  a formal  decree  embodying  its  terms.  We  deem  it  proper 
to  add  that  such  decree  shall  provide  for  the  creation  of  a 


35 


new  corporation,  ito  which  shall  be  sold  the  equities  in 
the  shares  of  the  Philadelphia  & Reading  Coal  & Iron  Com- 
pany held  by  the  Reading  Company.  The  rights  to  pur- 
chase the  stock  of  this  newly  created  company  will  be  sold 
to  the  preferred  and  common  stockholders  of  the  Reading 
Company  share  and  share  alike.  In  the  creation  of  such  a 
corporation  by  this  Court’s  order,  we  follow  a general  course 
pursued  in  the  case  of  United  States  vs.  Du  Pont,  et  al. , 188 
F.  R.,  127,  and  the  wisdom  of  so  doing  will  be  seen  by  an 
examination  of  the  opinion  lately  filed  in  that  case,  where 
the  purpose  of  such  procedure  is  fully  explained.  By  the 
creation  of  this  new  corporation  by  the  directions  of  this 
Court  and  by  its  retention  of  jurisdiction  to  enforce  this 
decree  as  therein  provided,  the  Court  can,  if  such  contin- 
gency should  arise,  by  its  control  of  this  newly  formed  cor- 
poration, control  all  of  its  stockholders  and  prevent  such 
stock  from  ever  being  used  to  thwart  the  decree  made  in 
pursuance  of  the  plan. 

The  paragraph  of  the  original  Reading  Plan  numbered 
eight,  which  is  paragraph  numbered  seven  of  the  plan  as 
modified  in  accordance  with  the  agreement  between  Read- 
ing Company  and  the  Attorney  General  of  the  United 
States  as  of  May  12,  1921,  contains  the  only  provision  in 
the  plan  proposed  to  carry  out  the  mandate  of  the  Supreme 
Court  of  the  United  States  which  is  not  agreed  to  in  all 
of  its  details  by  the  Reading  Company  and  the  Attorney 
General,  and  as  to  this  provision  of  the  plan  the  disagree- 
ment relates  only  to  a matter  of  time. 

The  section  referred  to  concerns  the  disposition  by  the 
Reading  Company  of  the  stock  of  the  Central  Railroad  of 
New  Jersey  owned  by  the  former,  and  as  to  this  disposition 
Reading  Company  and  the  Attorney  General  agree,  that  the 
stock  shall  be  transferred  to  one  or  more  trustees,  individual 
or  corporate,  to  be  held  and  voted  under  the  terms  of  the 
trust  until  sold  to  a purchaser  other  than  the  parties  de- 
fendant in  this  cause. 

Reading  Company  contends  that  the  spirit  and  the  letter 
of  section  five  of  the  Interstate  Commerce  Act,  as  amended 
by  the  Transportation  Act  of  1920,  justifies  its  prayer  that 


36 


the  value  of  this  stock  of  the  Central  Railroad  Company  of 
New  Jersey  shall  not  be  subjected  to  possible  sacrifice  by 
a sale  until  the  Interstate  Commerce  Commission  shall  adopt 
a consolidation  plan  which  will  designate  the  several  rail- 
roads of  the  East  with  which  the  Central  Railroad  Com- 
pany of  New  Jersey  may  be  consolidated,  so  that  assurance 
may  be  given  to  a railroad  company  purchaser  of  this  stock 
that  the  holding  of  it  by  such  purchaser  will  not  be  objec- 
tionable. 

The  Attorney  General  has  contended  that  the  stock  should 
be  placed  in  the  hands  of  a trustee  or  trustees  under  a decree 
of  this  Court  which  shall  direct  Reading  Company  to  pro- 
ceed with  all  due  diligence  to  offer  the  same  for  sale  within 
a definite  period,  and  if  at  the  expiration  of  such  period  a 
purchaser  has  not  been  found  by  Reading  Company,  then 
upon  the  application  of  the  Attorney  General  the  Court  may 
decree  a sale  of  this  stock  at  public  auction  or  in  such  man- 
ner as  the  Court  shall  then  provide. 

The  Court  is  of  opinion  that  because  of  the  provisions  of 
the  Transportation  Act  of  1920  there  is  presently  no  pros- 
pective purchaser  of  the  Jersey  Central  stock  at  a fair  price, 
and  so  long  as  the  control  of  the  voting  power  of  this  stock 
is  taken  from  Reading  Company  and  lodged  with  a trustee 
or  trustees,  acting  under  the  supervision  of  this  Court,  there 
is  full  compliance  with  the  mandate  of  the  Supreme  Court, 
which  requires  that  there  shall  be  established  entire  inde- 
pendence between  these  two  companies,  and  we  are  also  of 
opinion  there  is  no  good  reason  why  the  decree  of  this  Court 
shall  now  subject  the  stock  to  the  possible  sacrifice  of  a 
forced  sale  to  the  detriment  not  only  of  the  Reading  Com- 
pany but  also  to  the  almost  equal  number  of  other  share- 
holders of  the  Jersey  Central  who  are  not  parties  to  this 
record,  who  have  no  right  to  be  heard  and  yet  who  may  be 
very  seriously  affected  by  a decree  of  this  Court  ordering  at 
the  present  time,  a forced  sale  of  this  majority  stock. 

The  final  decree  to  be  entered  herein,  therefore,  will  direct 
the  transfer  of  the  stock  of  the  Central  Railroad  Company 
of  New  Jersey,  owned  by  Reading  Company,  to  such  trustee 
or  trustees,  individual  or  corporate,  as  the  Court  may  name, 


3 7 


and  shall  contain  the  terms  of  the  trust,  which  in  substance 
shall  provide  that  the  stock  shall  be  voted  by  the  trustee  or 
trustees  so  that  at  all  times  there  shall  be  entire  indepen- 
dence of  directors  and  management  between  Reading  Com- 
pany, as  it  shall  be  hereafter  merged  with  Reading  Railway 
Company,  and  the  Central  Railroad  Company  of  New 
Jersey;  and  that  pending  a sale  of  the  stock  all  dividends 
received  by  the  trustee  or  trustees  upon  the  same  shall  be 
paid  to  Reading  Company  or  as  it  shall  direct,  and  that  the 
actual  sale  of  the  stock  of  the  Central  Railroad  Company  of 
New  Jersey  shall  be  deferred  in  view  of  the  possible  group- 
ing of  railroads  by  the  Interstate  Commerce  Commission 
under  the  Transportation  Act  of  1920,  subject,  however,  to 
a provision  in  the  decree  that  on  motion  of  the  United  States 
or  other  party,  or  upon  the  Court’s  own  initiative,  that  with- 
out awaiting  such  action  by  the  Interstate  Commerce  Com- 
mission, an  order  may  be  entered  hereafter,  for  the  sale  of 
such  stock,  if  and  when  it  shall  appear  to  the  Court  that  the 
facts  require  it,  or  the  situation  makes  it  possible. 

It  is,  therefore,  ordered  that  counsel  for  the  Reading 
Company,  and  the  Attorney  General  of  the  United  States, 
shall  prepare  and  submit  to  the  Court  within  fifteen  days  a 
form  of  Decree  to  make  effective  the  mandate  of  the 
Supreme  Court  of  the  United  States  in  the  above  entitled 
cause,  in  accordance  with  the  provisions  of  the  modified 
plan  agreed  to  by  the  Reading  Company  and  the  Attorney 
General  of  the  United  States  and  in  conformity  with  this 
opinion. 


I 


I 


mnpi 


